Aged Care and NFP’s are under a lot of scrutiny these days and need to make robust decisions around property and governance sits at the forefront of that. You may be wondering what a good investment framework looks like for an aged care provider and what happens when bad investment decisions are made with the organisations money.
Suburbanite director and founder, Anna Porter deep dives into some case studies on what happens when governance isn’t followed. Porter says profit is critical, but the purpose of the asset, and how it fits the needs of the club is also paramount to successfully future-proofing the organisations assets and diversifying revenue.
Having a robust governance process is an important starting point and should inform your due diligence processes.
Porter looks at what framework to set up, and how to start mapping out good governance for asset acquisition, disposal and management.
Firstly, Anna draws our attention to the definition of Governance as being
the act or manner of governing a state or organization –
The word ‘action’ is so critical. Most organisations say “we have governance” for our property decisions but what they mean is they have a document that is in a drawer that touches upon a framework for governance, but they don’t follow it or actionit.
“The actions of governance looks exactly like due diligence. Your governance framework will inform your due diligence processes,” says Porter.
“We see it all too often with NFP boards, they have a large asset pool and little to no framework around property governance or no follow-through in their due diligence,” Anna Porter says.
Some of the most common mistakes she sees are;
- Using a friend of a board member who happens to be a real estate agent to drive the property strategy
- Not seeking independent advice from a range of property specialists from the outset of undertaking any major property projects
- Using people within the organisation for roles that fall outside of their skill set when it comes to property management and facilities management of major assets
- Not undertaking any due diligence on major projects
“A case study we recently encountered was with an industry association close to the farming and agriculture sector who purchased some property assets with the organisation’s funds. They chose to buy a unit in the Inner City for the chairperson to stay in when in the area. However, their broader membership base are people within the farming industry who are struggling with drought and losing their homes. The decision taken to buy an Inner City unit did not have a robust strategy or governance process around it and certainly raised questions with the membership at the time. This created a Public Relations (PR) issue for the organisation to deal with,” explains Porter.
Porter also sees a number of scenarios in the aged care and retirement living sector where the head of their property division is managing tens of millions of dollars in property assets is someone who has no formal qualifications, no property background but has been thrown into a facilities management and asset management role at some point.
“They will have often started as the groundskeeper, then been asked to tackle a few maintenance issues, then a few facilities management issues and before you know it, they are managing major tenancy disputes, lease renewals, sales and acquisitions and so forth. This is generally well outside their skillset and the organisation is often unaware they are not compliant with certain regulatory issues, breaking laws or just making poor property decisions because the correct governance framework has not been set up,” she says.
Porter shares some of the frameworks that needs to be set up to get your property governance right;
- Always get multiple quotes for any advice or works over a certain value
- If there is any potential for a conflict of interest with a consultant being engaged (ie: you have a JV with a developer and he has recommended a consultant for a peer review process) you should always have the consultant sign a declaration that they have no relationship with the other party
- Develop a robust strategy for your property assets so that you have an agreement on the purpose of each asset and manage it accordingly
- Have independent advice at each stage of property projects, acquisitions or disposals
- Breaking up the accountability for property projects; starting with a vision, then strategy and execution. The board should drive the vision but experts need to develop the strategy & help execute
- Do not use friends of board members for strategies on major assets
- Ensure everyone working on areas of your assets are suitably qualified and aware of all legal and regulatory framework
- Ensure your consultants have appropriate insurances and have them provide evidence and/or declarations to this effect. Professional Indemnity is a big one to check in this sector
- Have regular reviews of your assets and the management plan for them
- If embarking on a major project with a JV partner, ensure you have a robust and independent due diligence process and engage suitably qualified professionals for this
Porter says the biggest one that all too often gets overlooked is due diligence, which is the process of executing the governance. She stresses it’s not just sayingyou have ‘governance’ but actually doing it. All too many organisations write it in a document and put it in a drawer, or get consultants in to provide advice but then don’t follow that advice.
“You have to adopt it into your culture of your organisation, undertake the processes you have set up in all that you do and take the advice of your independent consultant to actually be effective in executing your governance,” she says.
We asked Anna Porter to list her top 5 tips that make up good governance when it comes to property, she gave us the following;
- Strategy is key. You need to know what you are looking to achieve with your property assets and how that links back to the organisation’s goals
- Set up due diligence guidelines for any projects, which needs to include economics, risk mitigation, due process, tax, legal advice and property advice
- Get undertakings from all consultants that they are independent and there are no conflicts
- Put people into roles they are qualified for or outsource to appropriate firms if you don’t have the skillset internally. Don’t make the error of putting people into roles they are not qualified for when it comes to property as it is highly regulated and very complex
- If you are embarking on a major project, set up a governance framework for that project specifically rather than relying upon broader governance that may not be relevant
So, ask yourself. Is your NFP’s corporate governance up to scratch?